# \ SAHARANPUR ELECTRIC SUPPLY CO. LID. ETC. ETC v. COMMISSIONER OF INCOME-TAX ETC. ETC

- **Citation:** [1992] 1 S.C.R. 117
- **Court:** Supreme Court of India
- **Decided:** 1992-01-15
- **Bench:** S. Ranganathan, N. D. Ojha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/saharanpur-electric-supply-co-lid-etc-etc-v-commissioner-of-income-tax-etc-etc-11422
- **Pages:** 23

## Headnote

Income Tax Act, 1961 : Section 43-Depreciation on service lines for
Assessment Year 1962-63-Computation of-Written down value-Determination of
·
B
Interpretation of Statutes-Retrospective interpretation of a statuteC
When arises.
Under the Indian Income-tax Act, 1922, while computing the
income from business, an assessee was entitled to an allowance of
depreciation at a percentage of the actual cost to the assessee or the
written down value of the relevant asset owned by him, and used for the
purposes of business. This Act was replaced by the Income-tax Act, 1961 •
Under both the Acts, 'written down value' was defined with reference to
'actual cost'. Initially between 1922 and 1952, the expression 'actual
cost' was defined to mean just the actual cost of the asset to the assessee.
However, consequent on the decision of some of the High Courts that in
ascertaining the actual cost of an asset to the assessee, it was immaterial
that someone else had recouped the assessee, wholly, or in part, towards
such cost, the 1922 Act was amended by the Income-tax Amendment Act
of 1953, with effect from 1.4.1952, nullifying the effect of the aforesaid
decision, and permitting only a limited exclusion. The Income-tax Act,
1961, however, directed the exclusion in the computation of the actual
cost, of all amounts reimbursed to the assessee by any person whatsoever.
~,
The appellants in the appeals before this Court were all electric
supply undertakings in various parts of the country. They had installed
service connections during the relevant previous year to the assessment
D
E
F
year 1962-63. A part of the expenditure incurred in connection with the
G
installation of these lines was recovered by the companies from consumers of electricity. They claimed that the depreciation to be allowed for
the assessment year 1962-63 and thereafter on the service connections
installed in the previous years should be based only on the actual cost
and written down value determined earlier, and there was no justification in disturbing the sa~e. However, the Revenue was of the view that H
117
118
SUPREME COURT REPORTS
(1992] 1 S. C. R.
A though the assets had been acquired in earlier previous years, the
statutory mandate,of Section 43(6) (b) was that the actual cost should be
determined afresh for each assessment year and this, for assesssment
year 1962-63 onwards, could only be in accordance with the definition
contained in the 1961 Act. Accordingly, it ignored the written down
value of the assets as per the earlier record, computed the actual cost of
B the service lines by excluding therefrom the contributions of consumers,
but gave credit thereafter for all depreciation allowed in respect thereof
(on the basis of the higher actual cost as then determined) in all the
earlier years.
On appeal by the assessees, the concerned High Courts upheld the
C view of the Revenue and held that the actual cost of all assets for
purposes of assessment year 1962-63 and onwards, whatever might have
been the date of acquisition of the assets, had to be COl,!Jputed in
accordance with the new formula laid down by the Income-tax Act,
1961.
D
In the appeals before this Court, on behalf of the assessee companies it was contended that the interpretation of the Revenue approved by
various High Courts, would result in absurdities and anomalies, that the
figure of the actual cost ascertained in respect of any asset in any of the
earlier previous years could not be altered in a subsequent year~ that
both the 1922 Act as well as the 1961 Act envisaged a continuance of' the
E
figure of actual cost once arrived a_t in respect of any plant or machinery,
throughout the life-time of such plant or machinery, that for the assessment year 1962-63, the question of determination of actual cost could
arise only in respect of assets acquired during the relevant previous year
under clause (a) of s.43(5), and so far as the assets which had been
acquired in earlier previous years were concerned, depre

## Text

_Characters 0–39,827 of 66,334. This is a partial read: ask again with offset=39827 for what follows._

..
, \
SAHARANPUR ELECTRIC SUPPLY CO. LID. ETC. ETC.
A
v.
COMMISSIONER OF INCOME-TAX ETC. ETC.
JANUARY 15, 1992
[S. RANGANATHAN AND N. D. OJHA, JJ.]
Income Tax Act, 1961 : Section 43-Depreciation on service lines for
Assessment Year 1962-63-Computation of-Written down value-Determination of
·
B
Interpretation of Statutes-Retrospective interpretation of a statuteC
When arises.
Under the Indian Income-tax Act, 1922, while computing the
income from business, an assessee was entitled to an allowance of
depreciation at a percentage of the actual cost to the assessee or the
written down value of the relevant asset owned by him, and used for the
purposes of business. This Act was replaced by the Income-tax Act, 1961 •
Under both the Acts, 'written down value' was defined with reference to
'actual cost'. Initially between 1922 and 1952, the expression 'actual
cost' was defined to mean just the actual cost of the asset to the assessee.
However, consequent on the decision of some of the High Courts that in
ascertaining the actual cost of an asset to the assessee, it was immaterial
that someone else had recouped the assessee, wholly, or in part, towards
such cost, the 1922 Act was amended by the Income-tax Amendment Act
of 1953, with effect from 1.4.1952, nullifying the effect of the aforesaid
decision, and permitting only a limited exclusion. The Income-tax Act,
1961, however, directed the exclusion in the computation of the actual
cost, of all amounts reimbursed to the assessee by any person whatsoever.
~,
The appellants in the appeals before this Court were all electric
supply undertakings in various parts of the country. They had installed
service connections during the relevant previous year to the assessment
D
E
F
year 1962-63. A part of the expenditure incurred in connection with the
G
installation of these lines was recovered by the companies from consumers of electricity. They claimed that the depreciation to be allowed for
the assessment year 1962-63 and thereafter on the service connections
installed in the previous years should be based only on the actual cost
and written down value determined earlier, and there was no justification in disturbing the sa~e. However, the Revenue was of the view that H
117
118
SUPREME COURT REPORTS
(1992] 1 S. C. R.
A though the assets had been acquired in earlier previous years, the
statutory mandate,of Section 43(6) (b) was that the actual cost should be
determined afresh for each assessment year and this, for assesssment
year 1962-63 onwards, could only be in accordance with the definition
contained in the 1961 Act. Accordingly, it ignored the written down
value of the assets as per the earlier record, computed the actual cost of
B the service lines by excluding therefrom the contributions of consumers,
but gave credit thereafter for all depreciation allowed in respect thereof
(on the basis of the higher actual cost as then determined) in all the
earlier years.
On appeal by the assessees, the concerned High Courts upheld the
C view of the Revenue and held that the actual cost of all assets for
purposes of assessment year 1962-63 and onwards, whatever might have
been the date of acquisition of the assets, had to be COl,!Jputed in
accordance with the new formula laid down by the Income-tax Act,
1961.
D
In the appeals before this Court, on behalf of the assessee companies it was contended that the interpretation of the Revenue approved by
various High Courts, would result in absurdities and anomalies, that the
figure of the actual cost ascertained in respect of any asset in any of the
earlier previous years could not be altered in a subsequent year~ that
both the 1922 Act as well as the 1961 Act envisaged a continuance of' the
E
figure of actual cost once arrived a_t in respect of any plant or machinery,
throughout the life-time of such plant or machinery, that for the assessment year 1962-63, the question of determination of actual cost could
arise only in respect of assets acquired during the relevant previous year
under clause (a) of s.43(5), and so far as the assets which had been
acquired in earlier previous years were concerned, depreciation had to
F
be calculated on the basis of the written down value, and since the
written down value in respect of these assets had already been ascertained for the assessment year 1961-62, all that bad to be done further,
to find out the written down value for the assessment year 1962-63, was
to deduct therefrom the depreciation allowed for the assessment year
1961-62. It was further contended that though the actual cost as
G determined for the earlier years was not sacrosanct or untouchable and
there may be circumstances in which it may have to be modified in the
light of subsequent events, and changes in actual cost could be taken
into account for purposes of the definition in s.43 (1) read with sub. sec.
(6), in certain situations, the actual cost could not be altered merely
because a subsequent legislation provided for a different formula for asH certainment of actual cost, and that formula could not be retrospecr
ELECTRIC SUPPLY CO. v. C.l.T.
119
tively made applicable to assets which had been acquired much earlier A
and the actual cost of which had already been determined in accordance
with the earlier prevalent law, that the legislation could not be given
retrospective effect so as to affect existing rights, unless the legislation
stated so
expressly or by necessary implication, that there was an
indication in the language of Section 43(6) itself to show that it was
available to be invoked only in
respect of assets which bad been
B
acquired in earlier years, and that if the intention had been that the
actual cost of assets which had been acquired earlier to the previous
year should also be covered, the legislature would have used the words
"as had been met" that the Revenue's interpretation may lead to the
computation of a negative written down value and consequent difficulties
in applying various other statutory provisions, and that it was also inC
compatible with the terms of Explanations 2, 4 and 6 to Section 43(6),
and would also lead to difficulties in the calculation of assessable profits
... under Section 41(2) or the allowance under Section 32(i)(iii).
Dismissing the appeals, this Court,
HELD : 1.1 Though, in substance, depreciation on an asset for any
..- assessment year is calculated on its written down value which is normally
carried forward from an earlier assessment year, the phraseology of the
Income Tax Act, 1961 does not bear out that the actual cost of the asset
D
has to be determined only once, viz., in the previous year of its acquisition. S.43(6) of the Income-tax Act, 1961 specifically deals with two E
categories of assets: (i) those acquired during the relevant previous year
and (ii) those acquired earlier to that. Even in respect of the latter class
of assets, the Act envisages a computation of the actual cost of the asset
and the deduction therefrom of all depreciation allowed in earlier years
in respect of that asset. Thus, the first step, statutorily prescribed, for the
determination of the written down value of any asset for any year, is for F
the Assessing Officer to determine its actual cost. This is a mandatory
step which the Officer cannot be prevented from taking merely because
the actual cost of the asset has already been determined in one or more
earlier years, though it may be true that in ninety nine (and perhaps
even more) percent of the cases, the result (barring mistakes and some
special situations) will just be the equivalent of the written down value G
taken for the immediately preceding assessment year less the depreciation allowed for that year. [129B-E]
1.2 In the light of t~e clear language of the statute, it is not possible
to accept that in the instant case, the Income Tax Officer had no
justification to compute first the actual cost of an asset which had been H
120
SUPREME COURT REPORTS
(1992] 1 S. C.R.
A acquired before the previous year. Besides, whatever its validity over the
period of continuous operation of the same Act (of 1922 or 1961) it can
have no application for the assessment year 1962-63. There is no provision in the 1961 Act which permits or compels the adoption or continuance of the figure of actual cost and written down value determined
under the provisions of the earlier statute which has been repealed by
B
the 1961 Act. Therefore, it cannot be accepted that the figure of actual
cost ascertained in respect of any asset in any of the earlier previous
years could not be altered in a subsequent year. [129F-G, 128F-G]
c
Maharana Mills v. I.T.O .. (1959] 36 I.T.R. 350; Habib Hussein v.
CJ.T., [1963) 48 1.T.R. 859 (Born.), relied on.
Karnani Industrial Bank v. CJ.T., [1954) 25 I.T.R. 550, referred to.
2.1 The definition of the expression "actual
cost" in S.43(1)
envisages the computation of the actual cost of each asset, for every
assessment year, not only in respect of assets acquired during the
D previous year but also in respect of assets acquired during the previous
year. This naturally has to be done with reference to the factual or legal
position that may prevail during the relevant previous year and can be
taken into account for the relevant assessment year. The section does not
say that the computation of the actual cost of the asset has to be based
only on the facts or law as they stood at the time of acquisition of the
E
asset and as could have been taken into account for the assessment year
relevant to the pre,·ious year of acquisition. Once it is conceded that the
figure oi actual cost can require modifications it is not possible to confine
such modifications to only three situations viz., (a) subsequent factual
occurrences, which called for a modification of the figure of actual cost
as at the time of acquisition determined earlier; (b) discovery of arithF
metical errors in the earlier computation of the actual cost or written
down value of any asset; and (c) redetermination of the original actual
cost necessitated by a specifically retrospective statutory provision. [131BD, 130B-C]
2.3 Where subsequent information - factual or legal reveals that
G the actual cost determined originally was wrong, there can be no doubt
that the original figure of actual cost has to be altered, if need be, and,
if possible, by reopening the earlier assessments and, if that be not be
possible, at least for the future. [131E]
Maharana Mills v. I.T.O., [1959] 36 I.T.R. 350, referred to.
H
2;4 There are clearly situations in which the actual cost does get·
ELECTRIC SUPPLY CO. v. C.l.T.
121
altered prospectively and not
retrospectively. One such instance is
A
where the cost of an asset increases or decreases on account of a
fluctuation in the value of the currency. Another situation would be
where, subsequent to the acquisition of the asset, substantial capital
expenditure has been incurred thereon (not amounting to the addition of
a separate asset on which depreciation etc. could be independently
a11owed). Such expenditure is added, under the rules, in practice to the
B
actual cost and allowance given thereon subsequently. Therefore, it
cannot be accepted that the actual cost cannot be determined year after
year on the factual or legal position applicable for the relevant previous
year and that the actual cost once determined cannot be altered except
in the aforesaid three situations, where the original figure itself requires
a modification. [133A, C-E]
C
Habib Hussain v. CJ.T. (1963] 48 I.T.R. 859 (Born.) referred to.
3.1 The rule as to the prospective application of statutes is wellsettled. A retrospective operation is not to be given to a statute as to
impair an existing right or obligation otherwise than as
regards a
D
matter of procedure, unless that effect cannot be avoided without doing
violence to the language of the enactment. If the enactment is expressed
in language ·which is fairly capable of either interpretation, it ought to be
construed as prospective only. [133G, 134B-C]
Craies on Statute Law (7th Edition) page 389; Maxwell on lnterpreE
tation of Statutes (12th Ed.) pp. 215-219; Principles of Interpretation of
Statutes by G.P. Singh (Fourth Ed.) p. 81, referred to.
3.2 The instant case is not at all a case of retrospective operation
of the statute. It is not the case of the revenue that the actual cost as
determined in the assessment year 1962-63 should be applied to revise
the computations for earlier years. All that the department says is that,
though in respect of these particular assets the assessee might have
obtained depreciation for earlier assessment years on the basis of a
higher figure, that will no longer be available in future and that the
figure of actual cost should be taken not as was originally calculated but
only at a lower figure for the assessment years 1962-63 and onwards. It
is just the case of a provision, a part of the requisites for the operation
of which is drawn from a time antecedent to its passing. [134G, 135A-B]
F
G
3.3 The interpretation of the Revenue does not operate against the
well-known principle that retrospective operation-assuming that the
provision has a retrospective effect-should not be presumed where H
existing or part rights are interfered with. [137 A]
122
SUPREME COURT REPORTS
[1992] 1 S. C.R.
A
4.1 There is no doubt or ambiguity about the provision. It is clear
and explicit, that the actual cost has to be determined, in each assessment
year, even of assets acquired before the commencement of the previous
year relevant to the assessment year. Not only is this intention plain and
clear, it does not create any injustice or hardship; on the contrary, it is
only reasonable and just. The object .,f the provision dealing with the
B
grant of depreciation is, generally speaking, to enable an assessee to get
the capital expenditure incurred by him in acquiring the asset written off
to his profits over the years though it is true that, in certain situations,
the statute specifically relaxes this rigidity. In earlier years, he had been
obtaining depreciation on a particular footing. But the language used
lent itself to an interpretation that he could get a deduction even in
C
respect of expenditure he did not incur. There is no doubt about the
\
correctness of this interpretation. [137B-C)
4.2 Where a person purchases an asset, it may be correct to say
that the cost of the asset does not change because a part of the cost is met
by some one else. But the legislature had to decide whether an assessee
D
should be allowed to claim an allowance of depreciation in respect of the
asset on the artificial basis of the cost of the asset rather than what he
has actually spent to acquire that asset and whether the wording of the
original provision as interpreted by courts, had not conferred an undue
advantage or benefit on the assessee. This was not considered by the
legislature to be equitable and, therefore, it was altered by legislation. It
E
accords with reason that the provision should be interpreted to say that,
at least after the amendment, the assessee should not be allowed depreciation on the basis of the earlier figure of actual cost. It is, therefore,
incorrect to describe this provision as creating any undue hardship or
injustice or inconvenience to an assessee. [137D-F)
F
Govind Das v. I.T.O. [1976) 103 I.T.R. 123 at p.132, distinguished.
5.1 When an assessee acquires an asset, he does not acquire a right
to obtain depreciation thereon equal to the actual cost of the asset as
originally determined for tax purposes. The effect of clause (c) of the
proviso to Section 10(2) (vi) of the 1922 Act and Section 34(3) of the 1961
G Act is that, while allowing depreciation in respect of any asset, the officer
should be careful to see that the aggregate of the depreciation allowed to
the assessee in respect of that asset do~ not exceed the actual cost of the
asset. In other words, as and when the provision is applied for each and
every assessment year and the depreciation on any asset is ~alculated, it
should be ensured that the depreciation allowed does not exceed the
H actual cost of the asset. The 'actual cost' referred to is not the actual cost
as originally determined at the time of the acquisition. [136B-D)
ELECTRIC SUPPLY CO. v. C.I.T.
123
-r
5.2 Thus, in the instant cases, while examining whether a particuA
lar asset is entitled to any depreciation for the assessment year 1962-63,
the officer will find that it has already secured depreciation much more
than the actual cost of the asset as determined by him and will grant no
further depreciation in respect thereof. It is no doubt true that in past
years the asset had become eligible to amounts of depreciation the
aggregate of which exceeds the actual cost as presently determined and, B
ifthat depreciation is deducted from the actual cost subsequently arrived
at, a negative figure may result. But such a situation will arise even in
the category of cases in which the revision of actual cost is permissible.
[136E)
5.3 In the instant case, there was no negative written down value in C
earlier years and, equally, there will be none in the year of revision as
the effect of the proviso is not to produce a negative written down value
J>Ut only to preclude further grant of depreciation on the asset in future.
Read thus a limitation on the maximum amount of depreciation that an
assessee can claim in respect of a particular asset, there is no question of
arriving at a negative written down value. [136G)
D
5.4 The use of the words "has been met' is very appropriate and
proper in the present context once the mechanics of the provision are
understood. It is incontrovertible that, under S. 43(1) read with S. 43(6)
the officer has to determine the actual cost for all assets, new and old,
and the definition in S. 43(1) only requires that, at the time of doing so, E
he has to examine whether the actual cost has been fully laid out by the
assessee or has been met by some one else in whole or in part. The words
"has been met" squarely fit into this reading of the section and the use
of the words ''has been met" does not restrict the definition in S. 43(1)
to assets acquired in the previous year. [138D-E)
F
.~ ..
Carson v. Carson and Stoyek, [1964)1 All Englan~ Law Reports 681,
referred to.
5.5 The proviso to clause (c) really places a limitation on the depreciation deductible at any point of time and, hence, there can never be a
negative written down value. Explanations 2 and 4 to Section 43(6) fall G
in line with the interpretation favoured by the Revenue once it is
understood that the reference to "depreciation actually allowed" should
be read subject to the limitation of clause (c) of proviso to S. 10(2) (vi).
Explanation 6 offers no difficulty as the relationship as "parent" and
"subsidiary" between the companies involved in the transfer for the
purposes of this clause has to be determined as at the time of the transfer H
124
SUPREME COURT REPORTS
[1992] 1 S. C.R.
A
of the asset and will not be a wobbling or fluctuating one. [138G-H,
139A]
B
5.6 There is no difficulty or anomaly resulting from the Revenue's
interpretation in the calculation of assessable profits under Section 41(2)
or the allowances under Section 32(1)(iii). [139B, E]
Birmingham Corporation v. Barnes [1935) 3 I.T.R. Supp. 26 (HL),
referred to.
·
Riverside (Bhatpara) Electric Supply Co. Ltd. v. CJ.T., [1977) 109
I.T.R. 399 (Cal.); CIT v. South Madras Electric Supply Corporation Ltd ..
[1977) 109 I.T.R. 426 (Mad.); CIT v. Saharanpur Electric Supply Co. Ltd.,
C
[1977) 109 I.T.R. 545 (All); CIT v. Bassein Electric Supply Co. Ltd., [1979)
118 I.T.R. 884 (Born); Rohtak & Hissar Districts Electric Supply Co. (P)
Ltd., v. CIT, [1980) p8 I.T.R. 52 (Del.); Ambala Electric Supply Co. Ltd.,
v. CIT, [1983) 139 I.T.R. 9Z5 (Punj); CIT v. Bombay Suburban Electricity
Co. Ltd., v. CIT, [1983) I.T.R. 298 (Born); British Insulated Cal/endars
Cables Ltd., v. CIT, [1983) 142 I.T.R. 300 (Born.); CIT v. Panvel Taluka
D
Electrical Development Co. Ltd., [19S3] Taxation 71(1)-14 (Born.); Ranchi
Electric Supply Co. Ltd., v. CIT [1984) 150 I.T.R. 95 (Pat.); CIT v.
Lonawalla Khandal/a Electric Supply Co. Ltd., [1985) 22 Taxrnan 77
(Born.); CIT v. Calcutta Electric Supply Corporation Ltd., [1987) 166 I.T .R.
797 (Cal); CIT v. Bassein Electric Supply Co. Ltd., [1989) 177 I.T.R. 482
E
(Ker.); CIT v. Calcutta Electric Supply Corporation Ltd., [1989) 179 I.T.R.
580 (Cal) and Ahmedabad Electricity Co. Ltd. v. CIT [1991) 190 I.T.R. 413
(Born.), approved.
F
CIVIL APPELLA 1E JURISDICTION: Civil Appeal No. 1861of1977
Etc. Etc.
From the-Order dated 27.8.1976 of the Allahabad High Court in l.T.R.
No. 271 of 1973.
Dr. Debi Prasad Pal, S.D. Dastur, T.A. Ramachandran, D.P. Mukherjee, Ms. Priya Hingorani, C.N. Mistry, Mrs. A.K. Verma, D.N. Misra, V.
Dholakia, R. Ayyam Perumal, P J. Pardiwala, Dushyant Dave, R.N. KarG anjawala; Ms. Manik Karanjawala, Ms. V.S. Rekha, Sajai Singh, Ms. Janaki
Ramachandran, Kailash Pd. Gupta and H.K. Dutt for the Appellants.
Dr. V. Gauri Shankar, S.C. Manchanda, Ms. A. Subhashini and S.
Rajappa for the Respondents.
H
The Judgment of the Court was delivered by
_ ..
+ -,
ELECTRIC SUPPLY CO. v. C.I.T. [RANGANATHAN, J.]
125
RANGANATHAN, J. The appellants are all electric supply undertakA
ings situated in various parts of the country. All the appeals relate to the
assessment year 1962-63 or later. They raise a common question regarding
the computation of depreciation on· service lines installed by the assessees, a
part of the expenditure incurred in connection with the installation of which
is recovered by the assessees from consumers of electricity.
Depreciation, under the Income-tax Act, is computed as a percentage of
the "written down value" of the asset in question. The Income-tax Act, 1961
came into force on 1.4.1962. S. 43(6) of the Act defines "written down
value" thus :
'Written down value' means-
"(a) in the case of assets acquired in the previous year, the actual
cost to the assessee;
B
c
{b) in the case of assets acquired before the previous year, the
actual cost to the assessee less all depreciation actually allowed
to him under this Act, or under the Indian Income-tax Act,
D
1922(11 of 1922), or any Actrepealed by that Act, or under any
executive orders issued when the Indian Income-tax Act, 1886 (2
of 1886), was in force."
The Act also defines the expression 'actual cost' in Section 43(1). It
reads thus :
E
"Actual cost" means the actual cost of the assets to the assessee,
reduced by that portion of the cost thereof, if any, as has been
met directly or indirectly by any other person or authority :
It will be seen from the main paragraph of sub-section (1) of Section F
43 that it does not really define what is meant by the actual cost of an asset
to the assessee; it only contains a gloss that, whatever the expression may
mean, that figure has to be reduced by that portion of it, if any, as has been
met directly or indirectly by any other person or authority. The question
before us arises partly due to this circumstance and partly due to the earlier
legislative history of these provisions.
G
Under Section 10(2)(vi) read with Section 10(5) of the Indian Incometax Act, 1922, an· assessee was entitled to an allowance of depreciation at a
percentage of the actual cost to the assessee or the written down value of the
relevant asset owned by him and used for the purposes of business. It is
common ground that the service lines constitute machjnery or plant on which H
126
SUPREME COURT REPORTS
[1992] 1 S. C.R.
A
the assessees are entitled to depreciation: Also, as under the present Act, so
under that Act, 'written down value' was defined with reference to 'actual
cost'. Initially, between 1922 and 1952, the expresssion 'actual cost' was
defined to mean just 'the actual cost of the asset to the assessee'. As already
mentioned, a part of the cost of the asset in the present case viz. service lines
B
is met by the consumers with the result that, though the company might have
incurred a particular amount as expenditure towards the installation of the
service lines, 'the actual cost' to it, of the service lines, could, in a loose
sense, be said to be the amount of expenditure incurred by it in this behalf
less the amount recovered from the consumers in respect thereof. The
Income-tax Department tried to adopt this layman's approach and restrict the
depreciation on the service lines on the basis of their cost less the amount
C
recovered from consumers. The Bombay High Court in CJ.T v. Poona
Electric Supply Company Ltd., [1946] 14 ITR 622 and in CJ.T v. Bombay
Suburban Electric Supply Co. (P) Ltd., [1977] 106 ITR 752, the Kerala High
Court in Cl.T v. Cochin Electric Co. Ltd., [1965] 57 ITR 82, the Punjab High
Court in CJ.T v. Ambala'Cantt. Electric Supply Co. Ltd., [1971] 82 ITR 217
and the Patna High Court in CJ.T v. Ranchi Electric Supply Co. Ltd. [1954]
D
26 ITR 89 disapproved of this line of reasoning. Relying on the decision of
the House of Lords in Birmingham Corporation v. Barnes, [1935] 3 I.T.R.
Supp. 26(HL), they held that, in ascertaining the actual cost of an asset to the
assessee, it was immaterial that someone else has recouped the assessee,
wholly or in part, towards such cost. This general principle is well settled by
E
F
G
these decisions and is also not in issue before us now.
The 1922 Act was amended by the Income-tax Amendment Act, 1953
w.e.f. 1.4.1952 in this respect. This amendment introduced an Explanation to
the definition of 'actual cost'- to nullify the effect of the above decision.
Though, at the stage of the Bill, the proposal was to exclude from the concept
of actual cost, any moneys reimbursed to the assessee in this regard by any
outside source vide [1952] 21 ITR (SC) 40, the amendment, as finally
effected, permitted only a limited exclusion. The Explanation read as
follows :
"For the purposes of this sub-section,, the expression 'actual cost'
means the actual cost of the assets to the assessee reduced by that
portion of the cost thereof, if any, as has been met directly or
indirectly by Government or by any public or local authority ...... "
When enacting the Income-tax Act, 1961, however, the legi~lature
revived the earlier proposal of 1953 and the present Act directs the exclusion,
H in the computation of the actual cost, of all amounts reimbursed to the
assessee by any person whatsoever.
ELECTRIC SUPPLY CO. v. C.I.T. [RANGANATHAN, J.]
127
"-1
Now the question which arises before us, in relation to the assessment A
year 1962-63, is this. The appellant companies had installed service connections during the relevant previous year. So far as these are concerned, there
is no dispute that depreciation has to be allowed on them with reference to
their 'actual cost' as defined in S. 43(1) i.e. by excluding contributions or
reimbursements from consumers. But the appellants have also to be granted
depreciation on service connections installed in earlier previous years and it B
is only in respect of such assets that the present controversy arises. The
depreciation on those assets, under Section 43(6) of the 1961 Act, has to be
computed with reference to their written down value, th.at is, their 'actual
cost' less all depreciation allowed in respect thereof under the 1922 Act till
the assessment year 196_1-62. Since those assets had been acquired by the
assessees in previous years relevant to the assessment year 1961-62 or earlier c
assessment years, their actual cost had been duly ascertained for the previous
year of acquisition in accordance with the provisions of Section 10(5)(a) of
the Indian Income-tax Act, 1922. If the assets had been acquired earlier than
the previous year relevant to the assessment year 1952-53, the actual cost of
the assets to the assessee would perhaps have been taken without any
D
deductions whatever in respect of the contributions made by other persons
towards the cost of the asset. In the case of such of those assets as had been
acquired during the previous years relevant to the assessment years 1952-53
to 1961-62, the actual cost would have been determined in accordance with
the relevant law as it stood at that time viz. by taking their actual cost and
deducting therefrom contributions made by the Government or any public or E
local authority to enable the assessee to acquire the assets. The assessees'
contention is that there is no justification for disturbing the written down
value as so determined and that the depreciation for the assessment year
1962-63 and thereafter should be based only on the actual cost and written
down value so determined earlier. They plead for the undisturbed continuance of the earlier depreciation sheets in respect of these assets. On the other F
hand, the Revenue contends that, though the assets have been acquired in
-Jr
earlier previous years, the statutory mandate of section 43(6)(b) is that their
y
actual cost should be determined afresh for each assessment year and this, for
assessment year 1962-63 onwards, can only be in accordance with the
definition contained in the 1963 Act. On this view, the Department has
ignored the written down value of these assets as per the earlier record, G
computed the actual cost of the service lines by excluding there from the
,contributions . of consumers but given credit thereafter for all depreciation
allowed in respect thereof (on the basis of the higher actual cost as then
determined) in all the earlier years. The question is which if these contentions
is correct.
All the High Courts have upheld the stand of the Revenue. They have H_
......
•
128
SUPREME COURT REPORTS
[1992) 1 S. C. R.
A
answered the question by holding that the actual cost of all assets for
purposes of assessment year 1962-63 and onwards, whatever might have
been the date of acquisition of the assets in question, has to be computed in
accordance with the new formula laid down by the Income-tax Act of 1961.
These decisions are: Riverside (Bhatpara) Electric Supply Co. Ltd. v. CJ.T.
(1977] 109 I.T.R. 399 (Cal); CJ.T v. South Madras Electric Supply CorpoB
ration Ltd., [1977] 109 I.T.R. 426 (Mad); CJ.T v. Saharanpur Electric
Supply Co. Ltd., [1977] 109 I.T.R. 545 {All); CJ.T v. Bassein Electric Supply
Co. Ltd., [1979] 118 I.T.R. 884 (Born); Rohtak & Hissar Districts Electric
Supply Co. (P) Ltd., v. CJ.T., [1980] 128 I.T.R. 52 (Del); Ambala Electric
Supply Co. Ltd. v. C.1.T., (1983) 139 I.T.R. 925 (Punj); CJ.T v. Bombay
Suburban Electricity Co. Ltd., [1983] 142 I.T.R. 298 .(Born); British Insulated
C
Callendars, Cables Ltd., v. CJ.T., {1983) 142 I.T.R. 300 (Born.); CJ.T v.
Panvel Taluka Electrical Development Co. Ltd., [1983] Taxation 71(1)-14
(Born.); Ranchi Electric Supply Co. Ltd. v. CJ.T., [1984] 150 I.T.R. 95 (Pat.);
CJ.T v. Lonawalla Khandalla Electric Supply Co. Ltd., {1985) 22 Taxman 77
(Born.); CJ.T v. Calcutta Electric Supply Corporation Ltd., [1987] 166 I.T.R.
797 (Cal); CJ.T. v. Bassein Electric Supply Co. Ltd., (1989) 177 I.T.R. 482
D
(Ker.); CJ.T. v. Calcutta Electric Supply Corporation Ltd. [1989] 179 I.T.R.
580 (Cal); and Ahmedabad Electricity Co. Ltd. v. CJ.T .. [1991] 190 I.T.R. ·
413 (Born.). The appellants before us contest the correctness of this unanimous view of the High Courts. Indeed some of the decisions above referred
to form the subject matter of some of these appeals.
E
F
Dr. Debi Pal, Sri Dastur and Sri Ramachandran, who appeared for the
assessees, submitted that the various High Courts have not correctly appreciateo the arguments put forward before them and failed to see that the
interpretation approved by them will result in absurdities and anomalies. In
view of the consensus of views of the High Courts against them, they have
taken considerable pains to address elaborate arguments which merit serious
consideration in these appeals.
We may, at the outset, dispose of an argument raised by Dr. Pal. His
point was that the figure of actual cost ascertained in respect of any asset in
any of the earlier previous years cannot be altered in a subsequent year.
According to him, both the 1922 Act as well as the 1961 Act envisage a
G continuance of the figure of actual cost once arrived at in respect of any plant
or machinery throughout the life-time of such plant or machinery. He says
that, for the assessment year 1962-63, the question of determination of actual
cost can arise only in respect of assets acquired during the relevant previous
year. under clause (a) of S. 43(5). So far as the assets in question are
concerned, which had been acquired in earlier previous years, depreciation
H
has to be calculated on the basis of the written down value. Since the written
t-
ELECTRIC SUPPLY CO. v. C.l.T. [RANGANATHAN, J.]
129
down value in respect of these assets had already been ascertained for the
A
,,
assessment year 1961-62, all that has to be done _further, to find out the
written down value for the assessment year 1962-63, is to deduct therefrom
the depreciation allowed for the assessment year 1961-62.
Attractive as this argument appears, there are two difficulties in
accepting it. The first is the language of S. 43(6) and, even, its predecessor
B
S. 10(5)(a) of the 1922 Act. Though, in substance, depreciation on an asset
for any assessment year is calculated on its written down value which is
nonnally carried forward from an earlier assessment year, the phraseology of
the Act does not bear out the contention that the actual cost of the asset has
to be detennined only once viz. in the previous year of its acquisition. S.
43(6) specifically deals with two categories of assets : (i) those acquired c
during the relevant previous year and (ii) those acquired earlier to that. Even
in respect of the latter class of assets, the Act envisages a computation of the
actual cost of the asset and the deduction therefrom of all depreciation
allowed in earlier years in respect of the asset. Thus the first step, statutorily
prescribed, for the determination of the written down value of any asset for
any year, is for the Assessing Officer to detennine its actual cost. This is a
D
mandatory step which the Officer cannot be prevented from taking merely
because the actual cost of the asset has already been detennined in one or
more earlier years, though it may be true that in ninety nine (and perhaps
even more) percent of the cases, the result (barring mistakes and some special
situations) will just be the equivalent of the written down value taken for the
immediately preceding assessment year less the depreciation allowed for that
E
year. This mechanics of the definition was explained by the Calcutta High
Court in Karnani Industrial Bank v. CI.T. [1954]25 I.T.R. 558, approved by
this Court in Maharana Mills v. I.T.O [1959]36 I.T.R. 350 and followed in
Habib Hussein v. CJ.T., [1963]48 I.T.R. 859 (Born.). In the light of these
decisions and the clear language of the statute, it is not possible to accept the
F
contention that the Income Tax Officer had no justification to compute first
~
the actual cost of an asset which had been acquired before the previous year.
The second difficulty in the way accepting the argument of Dr. Pal is that,
r
whatever its validity over the period of continuous operation of the same Act
(of 1922 or 1961), it can have no application for the assessment year 196263. There is no provision in the 1961 Act which pennits or compels the
G
adoption or continuance of the figure of actual cost and written down value
detennined under the provisions of the earlier statute which has been repealed
by the 1961 Act. We, therefore, reject this contention of Dr. Pal.
Perhaps realising the above difficulty, Sri Dastur put forward a slightly
modified contention. He concedes that the actual cost as determined for the H
earlier years is not sacrosanct or untouchable and that there may be circum-
130
SUPREME COURT REPORTS
(1992] 1 S. C.R.
A -stances in which it may have to be modified in the light of subsequent events.
According to learned counsel, however, changes in actual cost in three
"r
B
c
situations can be taken into account for purposes of the definition in S. 43(1)
read with sub-sec. (6). These, according to him, are :,..-
(i)
Subsequent factual occurrences which call for a modification of the figure of actual cost as at the time of acquisition
detennined earlier;
(ii)
Discovery of arithmetical errors in the earlier computation
of the actual cost or written down value of any asset; and
(iii)
Redetermination of the original actual cost necessitated by
a specifically retrospective statutory provision.
He points to instances of such modifications pennitted by judicial decisions. In Karnani Industrial Bank Ltd. v. CJ.T. [1954]25 I1R 558 (Cal.) the
assessee claimed to have purchased a machinery for Rs. 3,94,000 and
obtained depreciation on that basis from assessment year 1939-40 onwards.
D
In proceedings for assessment year 1946-47, the Officer discovered that the
cost of the machinery was only Rs. 2,80,000 and, since assessee had already
obtained depreciation beyond this, refused the grant of depreciation for
assessment years i946-47 and 1947-48. This was upheld by the Calcutta
High Court. In Maharana Mills (P) Ltd. v. l.T.O. [1959]36 I1R 350 (SC) the
E
F
Officer rectified the assessments of the assessee to re-work the written down
value computed and the depreciation granted for earlier years as not being in
accordance with law. The validity of these rectifications was upheld. In
Habib Hussein v. CJ.T., [1963]48 I1R 859 (Born) the asset in question had
been acquired in the previous year relevant to the assessment year 1950-51.
The assessee had acquired the asset under an agreement dated 4.6.48. But that
agreement had been revised on 10.7.50 (after the close of the relevant
previous year). The assessee claimed, nevertheless, that· a sum of Rs.
3,30,000 payable by virtue of the subsequent agreement, also fonned part of
the actual cost of the asset. This claim was upheld by the High Court.
According to learned counsel, this was also a case where the original figure
of actual cost was more precisely defined and quantified later. Counsel
G concedes that, in cases of this type the actual cost as detennined in earlier
years might need to be modified and that the assessing officer will be at
liberty to do so. He, however, contends that the actual cost cannot be altered
merely because. a subsequent legislation provides for a different fonnula for
ascertainment of actual cost; thar formula may very well apply in respect of
assets acquired in and after the previous year to which the new law will be
H
applicable but it cannot be retrospectively made applicable to assets which
f1
ELECTRIC SUPPLY CO. v. C.I.T. [RANGANATHAN, J.]
131
had been acquired much earlier and the actual cost of which had been
A
determined in accordance with the earlier prevalent law, unless the statute
specifically says so. As an example, he refers to Explanation 8 to S. 43(1)
which, though inserted in 1989, provides that certain expenditure, of the
nature specified therein, "shall not be included, and shall be deemed never 10
have been included in the actual cost of such asset"
We are of the view that it is difficult to read any limitations into the
statutory provision in S. 43(6) as contended for by counsel. As already
explained, th~ definition envisages the computation of the actual cost of each
asset, for every assessment year, not only in respect of assets acquired during
the previous year but also in respect of assets acquired before the previous
year. This naturally has to be done with reference to the factual or ·legal
position that may prevail during the relevant previous year and can be taken
into account for the relevant assessment· year.